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FHA will refi underwater borrowers

First lender must agree to forgive 10% of loan principal

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The Federal Housing Administration will launch a program on Sept. 7 that will allow underwater homeowners who are current on a non-FHA loan to refinance into an FHA-backed loan when their lender agrees to write off at least 10 percent of their principal.The FHA Short Refinance program, originally announced in March, is designed to help homeowners in markets that have seen large declines in home values refinance into "a safer, more secure" mortgage, FHA Commissioner David Stevens said in a statement.The FHA today published a letter providing guidance to lenders on implementing the program, which is voluntary and requires the consent of all lien holders.The borrower's existing first lien holder must agree to a "short payoff," writing off at least 10 percent of their unpaid principal balance. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.If the borrower has a second mortgage, their combined loan-to-value ratio m...